Developed by Chester Keltner. Described in his book "How to Make Money in Commodities"

Keltner Bands are based on ATR technical indicator, the bands use ATR values to plot the bands lines.

These Bands form Channels that help to identify the Forex market trends using this simple volatility channel.

Keltner Bands

Construction

Keltner Channels are similar to Bollinger Bands except for the fact that Bollinger Bands use standard deviation method to determine volatility and to plot the bands.

For the keltner bands instead of using the standard deviation the average true range (ATR) measure of volatility is used.

This indicator is an n number of periods exponential moving average of the closing price. These bands are created by

adding (for the upper line) and

subtracting (for the lower line)

an (n-period simple moving average of an n-period ATR) * an ATR multiplier.

Forex Technical Analysis and Generating Forex Trading Signals

This indicator can be traded in much the same way as the Bollinger Bands.

Continuation signals

When price moves outside the bands then a continuation of the current Forex trend is implied. A buy signal is when the channels are moving upwards and sell signal is when the channels are moving downwards

Continuation Buy Sell Signals

Reversal Signals- Double Tops and Double Bottoms

Tops and Bottoms made outside the bands followed by tops and bottoms made inside the Keltner channels indicate signal for reversals in the market trend.

Reversal Forex Signals

Ranging Currency Markets

In ranging markets a move that originates from one Keltner channel tends to go all the way to the other channel.